Track and Quotes

Show Shipment Information - Track and Trace PackageTrack and Trace
Get a Shipping Rate QuoteRate Quote

Biodiesel Production to Drop by 50%, Analysts Predict
Monday, 24 August 2009 00:00

U.S. biodiesel production has been rocketing upward in each of the past 10 years and reached 690 million gallons last year, but industry officials and analysts said it would drop this year by half to 350 million gallons or as low as 250 million gallons.

The slash in expected output of biodiesel results from several factors: the fuel’s large price premium over standard diesel, European tariffs and delayed imposition of a federal rule requiring more use of renewable fuels.

U.S. biodiesel producers put out 690 million gallons last year—petroleum diesel prices spiked to $4.764 a gallon in July—after they made 450 million gallons in 2007, a sharp escalation from just 25 million gallons in 2004, according to the National Biodiesel Board’s Web site.

“Some 350 million to 250 million gallons is the current estimated production level for 2009, which, of course, is subject to change,” Michael Frolich, NBB’s spokesman, told Transport Topics.

“We probably ran at 50% of capacity last year, while we’ve dropped to running at 20% of capacity this year, because it’s certainly a tough market right now,” said John Whittington, co-owner of Integrity Biofuels, Morristown, Ind.

Whittington told TT that Integrity’s capacity is 5 million gallons of biodiesel annually, or about 14,000 gallons a day.

Sources agreed that rising costs of raw materials were a factor in the lower production, but they differed in their views about the influence of the Environmental Protection Agency and European tariffs on U.S. biodiesel.

The Oil Price Information Service reported Aug. 5 that the average U.S. wholesale price for biodiesel was a little more than $3.30 a gallon. The Department of Energy said Aug. 4 that the average wholesale price of ultra-lowsulfur diesel was about $1.89 a gallon.

“Domestically in the U.S., around summer 2008, soaring feedstock costs jacked up the price of making biodiesel, especially the favored soy-based biodiesel. Some producers were unable to get feedstock,” Spencer Kelly, editor of OPIS’ Ethanol and Biodiesel Information, told TT.

“Depending on what period of time, quick-rising crude and diesel prices did help keep high-priced biodiesel competitive,” Kelly said, “but by and large, biodiesel has been uncompetitive with ULSD for some time, especially since crude prices fell last fall.” He estimated that U.S. production this year would amount to some 300 million gallons.

Whittington agreed: “People always ask me how high standard diesel has to go before biodiesel is competitive, but that’s the wrong question.

“The question is the spread between our feedstock costs and the cost of diesel,” he said. “We basically buy off feedstock costs and sell off diesel. Biodiesel needs to be extremely price competitive to be marketable.”

Whittington said that feedstock costs make up 85% to 90% of the cost of biodiesel, which he said was why biodiesel became uncompetitive when soy prices tripled last year.

“Soy prices have come down but not by much,” he added. “That’s why we’re going to convert this plant so that we can make biodiesel from all biomass, not only other agricultural crops, but also animal fats and waste grease.”

Kelly and Whittington said that Europe’s tariff also drastically affected the U.S. biodiesel market. In July, the European Commission said subsidies gave U.S. biodiesel an unfair advantage, and the commission extended to five years a stiff tariff that it had imposed temporarily in March.

A spokeswoman for the European Biodiesel Board told TT at the time that U.S. imports had grabbed 20% of the European market and fell to zero when the tariffs were instituted. She said that biodiesel exports to Europe constituted up to 80% of U.S. production.

“The European tariffs were almost a death blow to some biodiesel producers because it represented so much of their market over the last year,” Kelly said. “Basically, they were shipping B99 that was able to get the $1 per gallon U.S. blending credit [and] was eligible for European local subsidies as well.”

He added that when the European export market was lost, “the U.S. biodiesel industry was operating at somewhere between 25 to 30% of capacity by summer.”

Whittington agreed.

“We don’t sell directly to Europe but to some large blenders who may have,” he said. “Demand did drop after the tariffs were put on, and we even received material from the Europeans explaining why the tariffs were needed. I don’t blame them.”

An executive of another biodiesel refiner, who asked not to be identified, said that at least 50% of the U.S. production was going to Europe, which he said allowed refiners to become complacent and not focus on cutting costs.

But NBB’s Frohlich disagreed, saying that U.S. producers saw Europe only as a temporary outlet.

“I think the strongest point is that it was not the European tariffs that most affected the biodiesel market but the lack of a federal policy framework that was put into place in 2007 through the Energy Independence and Security Act but has yet to be implemented,” Frohlich said.

“Most of our producers were looking forward to 2009,” when an EPA mandate of 500 million gallons was set to go into effect, Frohlich said.

However, the biofuels mandate has been delayed, and the proposed EPA rule would remove soy-based biodiesel as an acceptable alternative fuel.

“Lack of a federal policy is the biggest challenge,” Frohlich said. “Once we reach that goal, we’ll see a significant growth in production, revenue and distribution in the biodiesel industry.”

Transport Topics, 8/24/2009